Wednesday, 1 October 2008

The most important thing for any business is getting paid and getting paid in a timely fashion. Sensible payment schedules are absolutely key to the ultimate survival of the small and startup business. For the early stage business 90 day payment terms, clients who pay late, or worse don't pay at all, can spell total disaster. Startup companies run on notoriously small budgets with very tight margins leaving little room for unforeseen delays when receiving payments. Prompt payment is key to the ultimate survival and success of each and every startup business, of course it is also a crucial factor in meeting the payroll each month!

Large corporations and multi-national organisations, some of those that we have worked with include Honeywell, Orange France and Lucent, often have onerous and lengthy procedures to become approved suppliers. Even when or if your SME survives the paperwork ordeal the payment terms can still be crippling, sometimes in excess of 90 days. Things can then be complicated even further when trading overseas because of the fluctuating currency exchange rates that must also be considered.

PhoneFromHere.com received some excellent advise and support regarding these types of issues from the UK Trade and Investment (UKTI) programme. The scheme delivers an informative two day workshop for SMEs who are starting to trade overseas, followed by some funding to support initial sales activity in foreign markets. We also receive ongoing support from a UKTI advisor and we were referred to Fred Bassnett from the North West's International Trade Team, about trading in the USA.

We were advised that many large corporations provide their project managers with credit cards and the authority to make significant payments to suppliers when required. We enquired with one of our existing contractors whether they were prepared to pay in this way and when they agreed we installed a credit card payment machine in our office.

We have had the ability to take credit card payments for almost a year now and generally it enables us to bypass the paperwork trail and receive payment much more quickly. PhoneFromHere.com's payment terms are usually 14 days from invoice, which may seem unrealistic to many of you who have experienced the accounts department of any large organisation. However, I can honestly say that we normally receive payment from our customers in less than 20 days from invoice, usually made payable via BACS or Credit Card.

A couple of words of warning; when taking large credit card payments from customers overseas the transaction may not go through, this is normally when the credit card service provider is suspicious of a large charge being made against a card, particularly from someone overseas when the card holder is not present. A temporary block is added to the card by the service provider, your customer will need to call their provider/bank and have the block lifted and then you will need to process the payment again. In my experience this can take a couple of attempts, but in the end I have always managed to take the payment.

Secondly if your customer is in the USA, make sure his card is VISA or MasterCard as most UK card systems will not accept American Express (AMEX), if you need to take payments via AMEX you can arrange to set this up separately, but obviously this will incur further (potentially unnecessary) cost.

Finally, with regards to fluctuations in currency, these can be handled in a number of ways, here are a couple of suggestions. If you are quoting in a currency which is not your own, then you can track the exchange rates and calculate your sales price based on a worst case scenario, thus mitigating your risk. The downside of this method is that it can have the effect of over inflating your prices and you could risk losing business to cheaper competitors. Alternatively and possibly the most preferable in these uncertain economic times, you can quote in your own currency, however this does of course transfer the risk to your customer who may not accept this as an option!

I hope this is useful, good luck getting paid, after all that's what its all about :-)

1 comment:

Interesting blog… It is often overlooked that companies go bust because of a lack of cash. Sometimes even the most profitable businesses go under if there is a shortage of cash or liquid resources which can be turned into cash. If a company is planning on a large transaction in a foreign currency sometime in the future, a forward or futures contract is also an option to hedge the risk but this often comes at a cost. Good luck with phonefromhere.com and stick to your stringent credit terms to ensure you don’t fall into the trap of overtrading ;-)